Fixed Ops Magazine – March 1, 2022​ 

How to Find an $80,000 Labor Deficiency
By Dustin Jones

My specialty is helping dealers squeeze every ounce of performance from their reconditioning. I do this to help them get more cars sale-ready faster to save money and meet demand.

One costly error I often encounter is a service or recon manager reactively wanting to add a tech or two to help the shop meet volume requirements and improve labor efficiency. Sometimes this is the right decision, but often it is not.

If you face this decision, and before you go any further, consider time leaks in your recon workflow that when discovered and remedied, will increase labor efficiency and department profitability without adding headcount and payroll.

I recently encountered this situation when this customer asked me to visit and observe shop practices. As part of my analysis, I audited the service department’s payroll. Now I had my solution: an underperforming line technician costing the department $6,700 a month in unrealized billable hours. This type of loss is called unapplied payroll.

Unapplied payroll loss can occur in different scenarios. Still, the primary cause here was slack service manager oversight. This laxity encouraged at least one technician to be less productive than his potential.

After detailing my findings to the service manager and technician, both saw their need to manage more closely and be accountable for their productivity requirements. The service manager saw the loss in profitability and the technician in compensation.

Understanding your shop’s unapplied and applied labor times – and where that unapplied time is coming from — is so vital a managerial task that it must be top of mind of your service manager.
How Did This Happen?
In a modern reconditioning shop using reconditioning software, production can run 80% faster than a dealership will get from a manual recon approach. When a shop runs so smoothly and efficiently (at first glance), it can mask problems like time leaks hiding in the data. I see this happen because managers can get lulled by the faster speed-to-sale gains recon workflow software makes possible. Thus, the importance of checking the gauges – performance details tracked and reported by the software.

These reports help identify workflow bottlenecks and waste, such as internal technician efficiency opportunities, which would have alerted the service manager to problems with internal labor efficiency.

Having spent most of my adult life working in dealerships – and now as a reconditioning performance manager – I’ve noted a few critical observations. The data I study tells me that, on average, internal tech efficiency is 68%. At this efficiency, technicians cost the business 40% of their payroll for this category.
Determine Your Gains
Use this formula for calculating unapplied time’s cost to payroll:
  • Unapplied time hours = “X.”
  • Subtract the difference of 120% = “Y.”
  • Total hours a technician should be producing
  • Calculate your average inspection and repair = 4.5 hours (for example) total per Repair Order = “Z.”
  • “Z” calculation divided by the house per unit times total potential hours = how many additional units could be made sale-ready (X x Y/Z).
While unapplied time was the most quantifiable loss, poor labor efficiency also means fewer cars were getting front-line ready quickly.
Poor labor efficiency directly affects a recurring cost per car per day called Holding Cost. An NCM Associates study estimates that the daily holding cost per vehicle is $40. Better holding cost management for dealers with average size inventories can save hundreds of thousands of dollars during the year. For instance, a monthly recon volume of 100 cars at a 13-day per car recon cycle is $52,000/month or $640,000 a year. A six-day cycle cuts that to $352,000 – a $288,88 cost avoidance.
What’s more, more inventory turns happen if vehicles are moving to the front line faster. Turns increase by one for every 2.5 days eliminated from the reconditioning process. That’s more business and more revenue for the dealership.
With that new production program in place, we set an initial labor efficiency goal of 80% (it had been performing at much less) for the shop with a target of 120% within nine months. Top performers achieve 150% technician labor efficiency.
When presented with such revealing information, a technician who will or can not improve their production should be replaced, considering the drain on resources.
Dustin Jones is a Performance Manager for recon software company Rapid Recon. He works directly with dealership managers to improve their reconditioning workflow efficiency and performance in this capacity. Dustin has 14 years in the automotive aftermarket and fixed ops positions with several multi- store groups, including Lithia. He holds a Nissan Award of Excellence in Service Advising.
Reconditioning workflow automation from Rapid Recon is the industry standard in time-to-line inventory turn and speed-to-sale vehicle revenue enhancement for automotive retailers. Benchmarking data based on 13 million vehicles processed uniquely positions Rapid Recon to advise dealers on how to improve their store’s profitability. Used by more than 2,000 dealerships, Rapid Recon ensures the accountability of processes, property, and people. Hence, dealers know answers quickly, find assets anywhere, and sell vehicles promptly to grow dealership profitability. CALL US: +650-999-0497